As published in The View, August 2022:
Money, Money, Money!
How, when, and why the Board of Directors spend it often is questioned, commented on, and can stir up a lot of controversy.
Last month I discussed how your Board of Directors and the Advisory Committees work together to deliver on Sun City Shadow Hills’ promise of a great place to live and vacation. Now, let’s talk about how our money is managed to make sure that we will not face sudden, unexpected, and costly special assessments.
HOA’s are governed by the state’s Civil Code which outlines much of what HOAs must do to address financial management. Despite these legal and fiduciary requirements, many HOA’s are mismanaged. At SCSH, we are proud of our Financial Advisory Committee. Our FAC members each have professional credentials in finance, business management, and law. They review all aspects of our finances on an ongoing basis. They are our financial watchdogs, and report directly and regularly to your Board.
Our HOA keeps its funds in federally insured accounts, and we reconcile each check we write every month. Every invoice paid requires approval by two Board members. The Board treasurer approves all invoices. The additional approval comes from any other Board member. Review and approval of expenditures rotates monthly so all Board members are familiar with and participate in the process. We have policies in place for purchasing authority, signing authority, and much more. We are constantly reviewing our financial procedures to make improvements and close any loopholes.
Our expenditures come from three different funds: the Operating Fund, the Reserve Fund, and the Capital Improvement Fund. Money is allocated to each fund during the annual budget process with input received from our various committees and arrived at through several public meetings open to all homeowners (usually in August, September, and October). These funds are not finalized until after the open meetings are held and the proposed budget has been posted on the official site for review. So, what are these funds and how is the money in them used?
The Operating Fund is used to pay for the cost of running the day-to-day activities of our HOA. Compare that to the cost of running your household and paying monthly bills.
Money in the Reserve Fund is set aside for big-ticket items; to periodically maintain, repair or replace things before they fall apart, have exceeded their useful life, or have become unsightly. Think of this as setting money aside to put a new roof on your house or to repaint and landscape at a future date.
A Reserve Fund value and estimate of its useful life is determined for each significant asset owned and maintained by the community at the time of the initial purchase or acquisition of the item. Thereafter prorated funds are set aside from the monthly assessments over the expected life of the asset so the necessary funds will be on hand when needed. Examples would be mowers for the golf course and air conditioners for Shadows and other facilities. Our reserve study is updated annually to make sure we are setting aside sufficient funding. This is what prevents us from having those dreaded special assessments, as we are constantly saving for the inevitable rainy day.
The Capital Improvement Fund is where we set aside dollars for even larger ticket items that the HOA and its members may decide to add to our facilities or to update the present facilities to meet unanticipated developments. In this past year, a portion of the capital improvement fund is being used for expenses related to the Coachella Valley Water District Flood Control Project, a long time on the drawing board but finally impacting our common area.
Each month we publish our limited financial reports in The View and give detailed reports at the Board meeting. In addition, we are supplied with audited financial statements annually. We want every homeowner to be informed and satisfied that the Board is dedicated to the sound financial management of our community.
We hope to see many of you at this year’s budget planning sessions or have your input communicated to the Financial Advisory Committee and your Board members. After all, we are talking about your money and your community.
Contact the author at firstname.lastname@example.org.